What India’s Microloan Meltdown Taught One Entrepreneur
Wednesday, June 10, 2015
Its swift expansion was unprecedented.
India’s SKS Microfinance Ltd. had created a new business model that in less than 15 years had reached more than 7 million poor entrepreneurs in 2010. Mainstream bankers and investors were beating on its door to fund the company and it pulled off the first stock listing for a microlender in India.
Then things went terribly wrong.
Local bureaucrats, politicians, the media and even SKS’s borrowers turned on the company and other microlenders in the southern state of Andhra Pradesh, claiming that their tiny loans were leading to suicides.
The story line had flipped overnight. What was once praised as a vibrant industry that was good for the poor started getting painted as an evil business that was pressuring poor villagers into taking loans they couldn’t afford, then harassing them to repay.
The biggest microlenders said they weren’t misleading or pressuring borrowers and that the success of their business indicated the strong need for such services for the poorest constituents.
Politicians told borrowers not to pay and bureaucrats imposed new rules on the companies. Tough regulations were created to dictate how much the companies were allowed to charge and lend. In the state of Andhra Pradesh, the industry imploded as microlenders saw a surge in defaults; some of the smaller ones went out of business. SKS went into the red for more than a year and had to rethink its business model.
At the center of the frenzy, bearing the brunt of the backlash, was Vikram Akula, the charismatic American founder of SKS.
- Impact Assessment